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Nebraska Horseracing Industry Awaits U.S. Supreme Court Decision on Constitutionality of Federal Thoroughbred Regulations

on Thursday, 30 January 2025 in Dirt Alert: David C. Levy, Editor

Federal courts have split on whether HISA, a private corporation, may constitutionally create and enforce federal law.

Several key economic development initiatives in the State of Nebraska hang in the balance until the U.S. Supreme Court resolves a circuit split concerning the Horseracing Integrity and Safety Act (“Act”).[i]  Passed in December 2020, the Act was the most extensive regulatory overhaul of the horseracing industry since the Interstate Horseracing Act of 1978.[ii] 

Under the Act, the Federal Trade Commission (“FTC”) created the HISA Authority, a non-profit, private corporation (“HISA”).  The FTC delegated its power to create and enforce rules and policies to HISA and its subsidiary entities, including the Horseracing Integrity and Welfare Unit (“HIWU”) and the U.S. Anti-Doping Agency (“USADA”).[iii] 

The U.S. Circuit Courts currently disagree whether the FTC’s creation of HISA, and its corresponding delegation of power, violates the U.S. Constitution.  As of January 27, 2025, the U.S. Supreme Court has yet to accept this matter and it remains pending before the Court. 

The U.S. Supreme Court’s resolving of the circuit split is crucial to the State of Nebraska.  As we explain below, the Nebraska Legislature has invested heavily in the state’s racetracks.  The uncertainty surrounding the Act places a ceiling on the Nebraska horseracing industry and overall potential.   The U.S. Supreme Court will likely not address the Act until October 2025.

  1. The Act Demands Compliance From Interstate Racetracks.  

HISA’s regulatory purview includes nine sets of regulations. The most robust is the Equine Anti-Doping and Controlled Medication Protocol (“Protocol”).[iv]  HIWU generally enforces and investigates alleged violations of the Protocol and maintains HISA’s list of prohibited or regulated medicines.[v] 

The Act currently only applies to certain thoroughbred horses,[vi] racetracks, horseraces, and other licensed persons including trainers, owners, breeders, jockeys, and veterinarians that operate in a state subject to HISA.[vii] Only states that voluntarily register with HISA or that allow “interstate off-track wagers” are subject to HISA. “Interstate off-track wagers” are wagers placed outside of the state that the horserace takes place.  Racetracks that allow interstate off-track wagers simulcast (i.e., broadcast) their races to other states. 

The Nebraska Racing and Gaming Commission has not registered with HISA.  Accordingly, no racetrack in the State of Nebraska can simulcast its races or accept wagers outside of the state. 

  1. U.S. Circuit Courts Disagree on the Constitutionality of the Act’s Key Provisions.

There is currently a circuit split among the U.S. Circuit Courts regarding the constitutionality of the FTC’s creation and delegation of power to HISA.  Three U.S. Circuit Courts of Appeals have addressed the Act: the Fifth Circuit (“Fifth Circuit”), the Sixth Circuit (“Sixth Circuit”), and the Eighth Circuit (“Eighth Circuit”) whose jurisdiction includes the State of Nebraska.   

The constitutionality of two aspects the Act creates are at issue.  The first is the FTC’s creating of HISA and delegating to it the power to create rules and regulations (as used herein, “Rule Creation Authority”).  The second is the FTC’s delegating to HISA, and by extension HIWU and USADA, the power to enforce the rules and regulations HISA creates (as used herein, “Enforcement Authority”). 

The courts ultimately conclude, after subsequent amendment to the Act, that HISA’s delegation of Rulemaking Authority was constitutional.  However, the Fifth Circuit found that the FTC’s delegation of Enforcement Authority to HISA and HISA’s delegation of the same to HIWU and USADA, is not constitutional.  The Eighth Circuit disagrees. 

            (a)        FTC’s Delegation of Rule Creation Authority Declared Constitutional

In National Horsemen’s Benevolent Protection Agency v. Black (“Black I”),[viii] the Fifth Circuit found the FTC’s creating and delegating Rule Creation Authority to HISA unconstitutionally violated the non‑delegation doctrine.[ix]  After Congress’ subsequent amendment to the Act, the Fifth, Sixth, and Eighth Circuits found the FTC’s delegation of Rule Creation Authority was constitutional.  See Oklahoma v. United States (“Oklahoma”),[x] National Horsemen’s Benevolent Protection Agency v. Black (“Black II”),[xi] and Bill H. Walmsey et al v. Federal Trade Commission (“Walmsley”),[xii] respectively. 

Under the non-delegation doctrine, “federal power can be wielded only by the federal government [and] [p]rivate entities may only do so if they are subordinate to any agency.”[xiii]  “[P]rivate entities [may] ‘operate as an aid’ but [must be] ‘subject to [the agency’s] pervasive surveillance and authority.’”[xiv] 

The Black I court initially found HISA was not truly subordinate as the FTC did not have sufficient oversight and control over HISA’s rulemaking authority.  The court juxtaposed FTC’s reviewing authority to that of the Securities and Exchange Commission (“SEC”)’s oversight over the Financial Industry Regulatory Authority (“FINRA”).[xv]  Both models provide a private entity, under the purview of the FTC and SEC respectively, to propose and create rules to govern their respective industries. 

The difference, the Black I court noted, is that the SEC may “abrogate, add to, and delete” the provisions FINRA drafts.[xvi]   Whereas the FTC may only recommend modifications to HISA’s rules.  The FTC’s lack of meaningful review authority renders HISA’s authority unconstitutional. 

Congress responded by passing 15 U.S.C. § 3053(e).  This affords the FTC the same review authority over HISA as the SEC has over FINRA.[xvii]  The FTC now has the “power [] to revoke [HISA]’s decision or place procedural and substantive conditions on any such decision.”[xviii]  All courts found HISA’s Rule Creation Authority, as amended, does not violate the non-delegation doctrine. 

            (b)        FTC’s Delegation of Enforcement Authority Leads to Circuit Split

The Black II court and the Walmsley court disagree as to whether HISA’s Enforcement Authority is constitutional.  This issue is the basis for the suit pending before the U.S. Supreme Court.

Under the Act, HISA’s Enforcement Authority includes the power to (1) investigate potential violations, (2) issue subpoenas, (3) levy fines and sanctions and (4) sue for injunctive relief.[xix]  HISA delegated this authority to HIWU and USADA.  As written, the Act only allows FTC to review HIWU and USADA’s decisions and methods of enforcement after the fact. 

Black II determined HIWU and USADA are still not truly subordinate to the FTC.  The Black II court held the Act allows HIWU and USADA to perform its enforcement functions “without the say-so of the [FTC]” and thus “does not operate under [the FTC]’s ‘authority and surveillance.’”[xx] 

The Walmsey court disagrees.[xxi]  It reasoned that the Act allows the FTC to modify or add to the Act’s provisions, which is a more pervasive oversight authority than the Black II court found. 

The plaintiffs in Walmsley petitioned the U.S. Supreme Court to address:

      1. Whether the Act unlawfully delegates enforcement power to [HISA].
      2. Whether the Act unlawfully delegates rulemaking power to [HISA].[xxii]

Walmsley’s petition for certiorari remains pending before the U.S. Supreme Court.  The Court declined to take this matter during its upcoming session.  We anticipate the Court to reject or deny the opportunity by October 2025.

  1. The Act Has Tremendous Impact on the State of Nebraska.

The ramifications of HISA can be broad for the State of Nebraska.  Most notably no racetrack in Nebraska may simulcast its races or accept wagers outside of the state. 

The Act also impacts the Nebraska horseracing industry and the state’s economy as a whole.  The Nebraska Legislature has recently invested heavily in its race tracks. 

In 2020 the Nebraska Legislature passed the Nebraska Racetrack Gaming Act, which allows developers to construct and operate licensed casinos if connected to a licensed horse racetrack.[xxiii]  Nebraska currently has six licensed horse racetracks.[xxiv]  

Nebraska State Senators proposed legislative bills this session that would further expand the uses of Nebraska racetracks.  LB 421 (Clouse) and LB 438 (Spivey) would allow racetracks in Nebraska to provide for sports wagering both in-person and virtually.   LR20CA (Bostar) proposes to amend the Nebraska Constitution to allow the same. 

The State of Nebraska has sought to stimulate its economy through its race tracks.  The success of these endeavors depends on the sustained growth of the horseracing industry.  The Act plays a direct role in this pursuit. 

The costs of complying with the Act, however, are large.  The Act requires each participating state to remit an assessment based on a formula the Act provides.[xxv] The Act uses the formula to calculate a nationwide total assessment and then apportions the assessment among participating states. 

The formula considers the states’ total number of projected starts, total purses, and horseraces in a given year.  A state’s allocation may not exceed ten percent of the total amount of purses it provides for covered horse races in a given year.[xxvi]  In 2024, New York had the highest assessment at just over $9 million dollars.  HISA assessed the State of Colorado approximately $360,000 and the State of Iowa approximately $1.1 million dollars.[xxvii] 

Nebraska racetracks must already provide a portion of its pari-mutuel wagering handle to the State of Nebraska.[xxviii]  If Nebraska chooses to remain a non‑HISA State, it avoids the additional costs but forfeits revenue generated from interstate wagering and simulcasting.  Regardless, the State of Nebraska and the U.S. Circuit Courts must await a decision from the U.S. Supreme Court.  We anticipate more information by October 2025.     

Attorneys at Baird Holm LLP specialize in various subject matter areas including administrative law, agricultural and land use law, general corporate and litigation and legislative matters.  Please do not hesitate to contact the firm if you have questions.

[i] See 15 U.S.C. § 3051 et seq

[ii] See 15 U.S.C. § 3001 et seq.

[iii] See Rule 3010(e)(1), 88 Fed. Reg. 5091 (Jan. 26, 2023).     

[iv] Id., at § I(a). 

[v] For a complete list of prohibited substances and corresponding penalties see Rule 4210 Violations Involving Prohibited Substances, 88 Fed. Reg. 5124 – 5160 (Jan. 26, 2023).  

[vi] HISA currently only applies to thoroughbred horseraces, though quarter horse owners, trainers, racetracks and state horseracing associations may voluntarily register with HISA.  See generally 87 Fed. Reg. 29862 (May 17, 2022). 

[vii] See generally 15 U.S.C. § 6051(4), (5), and (6) (definitions of Covered Horse, Horserace, and Person, respectively); and Rule 2010, 88 Fed. Reg. 446 (Jan. 26, 2023) (providing that all Covered Horses, Horseraces, and Persons must comply with HISA). 

[viii] 53 F.4th 869, 890 (5th Cir. 2022). 

[ix] National Horsemen’s Benevolent Protection Agency v. Black, 53 F.4th 869, 890 (5th Cir. 2022). 

[x] 62 F.4th 221, 229 (6th Cir. 2023). 

[xi] 107 F.4th 415 (5th Cir. 2024). 

[xii] 2024 WL 4248221 (8th Cir. September 20, 2024). 

[xiii] Id., at 872 (citing A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 537 (1935)) (emphasis added). 

[xiv] Id., at 881 (citing Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 388 (1940)). 

[xv] Id., at 887-888 (citing Sorrell v. SEC, 679 F.2d 1323 (9th Cir. 1982); and 15 U.S.C. section 78s et seq. (the “Maloney Act”)). 

[xvi] Id., at 887 (citing 15 U.S.C. section 78s(c)). 

[xvii] Pub. L. No. 117-328 (2022).

[xviii] Id., at 230.

[xix] Id., at 429 (citing 15 U.S.C. sections 3054(h), 3054(j)). 

[xx] Id., at 430 and 435. 

[xxi] Id., at 8. 

[xxii] Walmsey v. Federal Trade Comm’n, No. 23-2687 (8th Cir. Sept. 20, 2024), petition for cert. filed (U.S. Oct. 10, 2024) (No. 24‑420).    

[xxiii] See Neb. Rev. Stat. § 9-1101 et seq. (the “Nebraska Racetrack Gaming Act”). 

[xxiv] Four now include operational casinos: Grand Island Casino Resort (Grand Island, Nebraska), The Harrah (Columbus, Nebraska), WarHorse Casino Lincoln (Lincoln, Nebraska), and WarHorse Casino Omaha (Omaha, Nebraska).  A fifth, WarHorse Casino Atokad (South Sioux City, Nebraska) is in the development stage.  In July 2024, the Nebraska Racing and Gaming Commission approved the transfer of Hastings Exposition and Racing, Inc.’s racing license from Hastings, Nebraska, to Ogallala, Nebraska, to establish a quarter horse racetrack and casino resort. 

[xxv] See 15 U.S.C. § 3052(f) and Rule 8520 (calculation of assessment). 

[xxvi] See Rule 8520(c)(3).

[xxviii] Neb. Rev. Stat. § 2-1207(2). 

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